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HMRC internal manual

Venture Capital Schemes Manual

EIS: income tax relief: the investor: meaning of ‘associate’

Meaning of ‘associate’ - ITA07/S253

For the purpose of the EIS relief an associate of an individual is:

  1. a relative, that is to say, their:
i) spouse or civil partner,

ii) parent or remoter forbear,

iii) child or remoter issue,

but not their brother or sister.

As regards (a) (i) above, separated spouses or civil partners are regarded as associated with each other but divorced persons are not.

Other relatives in (a) (ii) and (iii) should be regarded as associated only if there is a blood relationship, for example, an illegitimate child is an associate but a step-child is not.

  1. a partner - that is, anyone with whom the individual carries on a business as described in the Partnership Act, 1890 (see BIM82001),
  2. the trustee or trustees of any settlement in relation to which the individual claiming relief (or any relative of his - living or dead - within (a) above) is or was a settlor (but see below),
  3. where the individual is interested in (see below) any shares or obligations of the company which are subject to any trust or are part of the estate of a deceased person, the trustees of that trust or the personal representatives of the deceased.

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The trustee or trustees of any settlement to which c) above applies are associates of the individual claiming relief, and therefore any rights or powers which they possess as trustees of that settlement are, in effect, deemed to belong to the individual. This does not, however, apply to any rights or powers they may have in other capacities, for example, in relation to shares owned by them personally or as trustees of other settlements of which neither the individual nor any of his relatives (living or dead) within a) above is or was the settlor.

Where d) above applies, an individual interested by virtue of the trust in shares or obligations of the company which are subject to the trust has as his associate only the trustee or trustees of that trust. Any rights and powers they possess as trustees are deemed to belong to him but not any rights and powers they possess in any other capacity.

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‘Interested in’

For the purpose of d., the words ‘interested in’ have a wide meaning. For example, where shares are held by trustees, the trustees, the beneficiaries and the remainderman (if any) of the trust are all interested in the shares. Where shares are held by trustees under a will for persons in succession, the life tenant and the remainderman, as well as the trustees, are interested in the shares. (See, in this connection, CIR v Park Investments Ltd, 43TC200, particularly the judgment of Danckwerts L J at page 225, CIR v Tring Investments Ltd,22TC679, and Alexander Drew and Sons Ltd v CIR, 17TC140).

The executors or administrators are interested in the assets of a deceased person’s estate during the period of administration, (Willingale v Islington Green Investment Co, 48TC547). The beneficiaries should be regarded as interested in any assets of the estate from which they may benefit.